10 Ways Startups Can Deal With Patent Troll Demands

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Editor’s note:Colleen V. Chien is an assistant professor of law at Santa Clara University School of Law who writes and speaks regularly before national audiences on patent and patent-reform issues. Follow her onTwitter. Stefani E. Shanberg is a partner at Wilson Sonsini Goodrich & Rosati, where she specializes in defending technology companies against patent claims from competitors and non-practicing entities.

It’s no fun receiving a patent demand, but rest assured, you are not alone. When that dreaded “invitation to license” or, worse, “complaint” arrives at your doorstep, what should you do? Here are some tips based on our collective experiences counseling over a hundred startups and surveying hundreds of technology companies about their practices. (The full report on startups and patent trolls, including how often survey respondents used different strategies, and how much it cost them, can be found here.)

1. Don’t Panic

This is perhaps the hardest advice to follow. Being on the receiving side of a demand can be extremely upsetting. But patent demands are now increasingly a fact of life, and investors, underwriters, board members, and potential acquirers know this. Most troll demands will go away before a suit is filed and most cases are not bet-the-company-litigation. Your supporters will not likely back away from you just because of a patent troll suit. Just as in business, keeping your cool will help you stay in control of the situation, rather than vice-versa.

Keep A Low Profile

If you’re small, there’s a reasonable chance you’re only one of many receiving a demand letter. Take a look at the patent and the allegations; if you can form a reasonable belief that a license is not needed, file the letter away. Twenty-two percent of respondents to the survey referenced above resolved the threat by doing nothing.

Find A Lawyer With A Long-Term View And Business Savvy

Your lawyer is a great resource, but make sure she understands and has your business interests in mind. Some lawyers are reluctant to advise you to do nothing. Yet, that is often the best strategy. Choose someone who you trust to watch your back business-wise, and who is interested in a long-term relationship with you. There is no one-size-fits-all approach to these cases.

Know Yourself

Though your first instinct when seeing a demand may be to think of the million reasons the patent is rubbish, the easier way out is to assess whether the patent has anything to do with your business. By reflecting on your own business, you may be able to come up with easier ways out – that you don’t practice the patent, are indemnified, are licensed, or don’t have any revenue. If the patentee is persistent, these defenses are more likely to convince them to drop their case. As appealing is it may be to “kill” the patent, principles can be expensive in patent litigation. Your priority should be getting yourself out. One exception is if you have your own unique prior art; then, go ahead and focus on invalidity and leverage it to try to obtain an early resolution.

Check Out The People, Not Just The Patent

If the patentee is persistent, check them out. Who is holding the patent, who represents them, have they been involved in other litigations or campaigns? Get as much information as you can. Who is behind the suit can matter as much if not more than the patent they hold. Some patent trolls are out for quick cash. Others may have different reasons for targeting you: They think you are an easy target; they are using your money to go after someone bigger; or they are hoping to use you to set an example for their future campaigns. But few actually want to take their cases to trial. Check the company out using Secretary of State websites, conducting online searches, and checking patent ownership (assignments.uspto.gov). If they’ve sued before, find out how the story ended, including by calling up other targets or their lawyers. Your local public law school library, or tools like PACER or Docket Navigator may be able to provide some information; Lex Machina, a company one of us advises, offers a report on who has sued you and to put you in touch with others who have requested the same report. Find out who the decision makers are, whether they are involved in other businesses subject to countersuit, whether they have perhaps sued you before (it happens; these guys change their names and change counsel and sometimes go back to the already-licensed well).

Poverty Defense

These cases are about money. Don’t be shy about telling the patentee about your financial situation and that you really aren’t worth their time. Ask what it will take for them to go away, and educate them that there’s really no revenue from the accused products. Your lawyer can do this by sharing information about your financials on a confidential basis. Or you can make the call yourself, explaining that you have a little cash to resolve the problem and don’t want to spend it on a lawyer. Often it is best to focus on economic defenses, as the patent troll is unlikely to agree that you don’t infringe and even less likely to agree that the patent is invalid. But they don’t often want to pursue costly litigation when there is no pot of gold at the end of the rainbow.

7. Team Up

If you’re small and you’re sued, the odds are good that you will have company. Seek out joint defense groups and allow codefendants with more exposure to lead the way. Be a member in good standing of a joint defense group, but be careful that you don’t end up committed to costs that you would not have incurred on your own. While you may be able to put the case on “life support” (see below) the other defendants may opt for a more aggressive defense and split costs on an equal basis with you. Joint representation —when a single firm represents multiple parties and the costs are evenly split among them— makes the most sense when parties have similar exposure and goals. When the parties have different exposures and goals, joint defense—where parties coordinate but have their own counsel — is likely the more economic choice.

8. Life Support

Lawsuits are expensive, but they can be done efficiently. Keep a low profile. Produce documents without a fight. If you can, offer to help with the defense so you don’t have to pay a lawyer to do all of the heavy lifting, e.g. you can have an engineer assess non-infringement defenses or search for prior art. The distraction is costly, but perhaps less so than the lawyer’s fees.

9. Pick Battles Carefully

Prioritize the fights that matter; typically “I don’t infringe” or defenses related to your exposure will win the day. In certain circumstances, an administrative challenge (reexamination or post-grant review) to the asserted patent may also provide you with leverage. Be aggressive where it counts most. There may be opportunities to set a precedent that you won’t go down without a fight, and to do so without breaking the bank. Other times the adage, “even when you’ve won, you’ve lost” — in terms of time, attention, and resources — applies.

10.Advice For All Times: Don’t Be An Easy Target

Trolls pick their targets by studying websites, looking at product specs, and trying to make out a case that you need their patent. Don’t make it easy for them. Require registration before granting access to whitepapers, detailed documents, or video tutorials that delve into the behind-the-scenes details. Think twice about being on customer lists or advertising the ins and outs of your business, the products you use, etc., unless there’s a good business reason for doing so. Often it is the companies that advertise most successfully that are the most frequent targets of troll demands — troll threats should not drive business decisions, but don’t be surprised when your successful marketing campaign is followed by an onslaught of troll letters.